CIBP SPRINT GOVERNANCE COOP MODEL AND OPPORTUNITIES OF DIGITALIZATION
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
CIBP SPRINT COCREATING VALUABL E CONTENT AND INSIGHTS FOR OUR MEMBERS GOVERNANCE COOP MODEL AND OPPORTUNITIES OF DIGITALIZATION
GOVERNANCE MODEL / About Sprint
How can CIBP leverage a coordinated way for a meaningful
and collaborative innovation throughout its community?
Taking on this challenge, the CIBP team product trends, the SPRINT team will deep dive
designed a solution: the SPRINT. in the matter with data and cases and share same
report drafts to encourage CIBP members to share
The SPRINT connects and engages specialists their own experience. After that, an insightful and
and seniors in an international approach of practical report will be produced.
innovation and technology. This is a collaboration
from inside and outside CIBP members to generate Community engagement is the backbone of a
knowledge, tools and experiences to be used by all successful SPRINT. Reach out to the CIBP team to
members. Based on a methodology of innovation co-create the next one.
sprints, our focus is to produce relevant material
from within the community to serve real challenges.
How does this work?
After selecting a theme of innovation and
technology that has multiple implications in
banking and financial services, in coop models or
Executive Summary
This report provides an analysis of cooperative governance, discussing the uniqueness
elements of cooperative model that shape policies and practices in the relations with customers,
members and the board. This report also puts a light on the impacts and opportunities of
technologies in governance models.
Three specialists collaborated with the discussions in this report, contributing with their
researches and outlook. Mr. Eric Lamarque, author of several articles and books on the management
of banks, shares his findings in building a framework to assess different governance models,
considering important aspects such as number of decision-making levels and the influence and
authority of each level. Mr. Pedro Andrade, a blockchain enthusiast entrepreneur, points out
the opportunities towards innovation and technology, in which blockchain and digital tools can
foster trust, transparency and participation in decision-making processes. Mr. Raymond Oliger,
former President of Banque Populaire Lorraine Champagne and of the Fédération Nationale des
Banques Populaires, draws attention to the importance of assessing coop governance model in
the face of principles of cooperative governance, highlighting criteria like balance, transparency,
credibility, independence and sustainability.
The report gathers different references to help financial coop institutions to rethink their
governance model, making possible to evaluate how their practices are leveraging coop values
and to evaluate their readiness to adopt technology trends.
Index Introduction 05 Coop Governance Model 06 Technology and Governance 08 Experts Governance Models 11 Blockchain Opportunities and Challenges 14 Coop Governance and Principles 16 Conclusion and Outlook 19 References 20
DESINING APPS FOR ELDERLY / Introduction
Introduction How are we taking opportunities in this
dynamic era to change old systems and models?
“We design therefore we become”. This quote
from Jason Silva, one of the most influential In this challenging scenario, this report
futurists of our time, sums up the changes we are brings us content about how building a successful
facing in this digital era. model for cooperative governance, regarding the
organization of decision making processes and in
Based on a set of principles and values we the light of technological trends that may reshape
design the best tools to match our needs, to solve our models.
the problems we want; at that time. The way we
get educated, the way we collaborate, the way we This is an opportunity to rethink current
make our organizations last. All these tools, in the models and design new approaches to innovate
end, shape the way we think, we act and interact. in our organizations. From voting systems
We have designed the cellphone to overcome a that ensures that every single voice is heard to
communication gap and now our devices shape decentralized control to foster trust. All based
the way we interact with each other and with the on and leveraging coop values. What we design
world through data. shapes us and our environment back. In the end,
we design therefore we become.
GOVERNANCE COOP MODEL / Coop Governance Model
Coop Governance Model
Financial cooperative institutions stand for Coop governance is oriented by a set of Resilience: proximity to communities
responsibility and social cohesion since their principles that also establish the constraints and help coop banks to anticipate and adapt to
creation in the 19th century. Supporting their challenges in designing its model. new circumstances. Being able to change their
operations, unique in the principle-based services objectives and design services in advance may
and ownership model, innovative governance Proximity to customers: coop banks be essential to a faster decision-making process.
models are designed as the fundamental structure are part of their communities, having a deep
connection with their customers. The local support Solidarity: coop banks are deep-seated in
to add value to their customers and members.
stems from a dense network of branches. real economy, providing credit to households
And now, the pace of technology transformation
and small and medium enterprises. They
is pushing forward their evolution. promote entrepreneurship at the individual
Democratic Structure: members and
customers have a role in the coop governance level, fostering the common good of society.
Deloitte, the largest professional services
model. The “one member one vote” principle
network in the world, defines Governance shapes the governance structure. Sustainability: positive social impact
Model as: “the mechanism used by the board comes with environmental responsibility: Coop
and management to translate the elements of Trust in relations: coop banks are banks promote services and investments that
the governance framework and policies into relationship banks. Therefore, trust and enables a sustainable development.
practices, procedures, and job responsibilities credibility are key. Governance model builds
within the corporate governance infrastructure.” trust by reducing misinformation often seen in
the relation between clients, members, managers
and directors.
Traditional governance model is institutions. As presented further in this report,
characterized by top down decisions: setting a framework is needed to build more than a “one
objectives, defining managerial activities, size fits all” model, and to create a path that will
committing to results for shareholders. A central constantly help rethink a governance structure
body owns local branches and subsidiaries. rooted in the coop values and flexible in order
Coop governance shifts this established model: to adapt to our changing environment.
bottom-up decisions set the protagonism of
local branches that own the central institution.
Customers become members due to ownership,
being active in the definition of strategies and
having their voice heard equally.
Besides this common and shared structure,
cooperative institutions work with a wide range
of governance models. Local needs, national
regulation, banking background and future
interests create different identities for the
GOVERNANCE COOP MODEL/ Technology and Governance
Technology and Governance
The constant changes in technology in the Governance has an impact in the rapid based on data. Therefore, data governance, data
banking sector impacts the business models, adoption, or not, of trending technologies for security, compliance risk and privacy are new
from the traditional banks to smaller cooperative the transformation of traditional services into board issues implicating different processes,
financial institutions. e-banking profile. Openness to innovation, risk operations and strategies.
taking, fast decision-making and agile product
Digitalization brings well-known and service development are elements shaped by digital governance: online voting, open
virtual discussions and information access;
opportunities over product and service the governance model.
these are some opportunities that increase
development. Accounts, credits and mortgage
the influence and involvement of people
loans are easily offered online, replacing the Which technological trends may impact the in governance processes. Adopting these
face-to-face services at bank’s branches. But governance structure of coop financial institutions? technologies can decentralize dominant voices,
technology also opened the market to fintechs leveraging participation of all and improve
that offer customer-oriented products. The focus big data and predictive analytics: the trust.
on customer experience and digital interface is ability to collect massive amount of data and
attracting an increasing number of customers, predict events. This technology can improve the blockchain: decentralized storage of
shifting from old “brick only” models. At last, efficiency on monitoring and tracking the usage data and transactions between links. Thanks
digitalization is an opportunity for scaling up with of resources, making possible to prepare for to this fundamental element in the building of
future effects like economic crisis or regulation blockchains (blocks of information identical
a small investment.
change. The use of information can empower across the network) a blockchain can not be
groups, making decision processes faster and controlled by a single entity and has no pointof failure. Everyone is accountable in a distributed system where everybody register via a secure
validation mechanism. Governance can become fully transparent and verifiable when elections and
decision-making are run through blockchains.
artificial intelligence: autonomous decisions in specific tasks within certain programmed
parameters. This technology autonomously solves complex problems, giving faster responses than
humans on credit applications or insurance pricing, based on gathered data. Virtual assistants chatbots
and automated personalized review summaries are already the implementation of artificial intelligence
in banking services and products. AI brings questions to managerial structure on accountability for
decisions made by algorithms.OPINION FROM EXPERTS
We heard experts from different areas of study, from coop governance
model to blockchain, to collect perspectives and insights that help to deep dive
in understanding governance model and digitalization opportunities.Governance Models
GOVERNANCE COOP MODEL/ Governance Models
ERIC LAMARQUE
Eric Lamarque is a professor at the University Paris 1 Panthéon Sorbonne within the IAE of Paris where he directs
the Master of Finance. His research focuses on issues of strategy, governance, organization, and performance in financial
institutions. Author of several articles and books on the management of banks, he works with the general management
of financial institutions to assist them in restructuring and their development strategy, carrying out expertise and study
strategic assignments. He is also a member of the Supervisory Board of Caisse d’Epargne Aquitaine Poitou Charente,
Member of the Risk Committee, and Director of foundations and training organizations.
We had a conversation with Mr. Lamarque on two dimensions: In order to collect data and validate the
about his experience with governance models and 1. the number of decision-making levels, split identification of the governance models, Mr.
the impact he sees with adoption of technology. in three levels (local, regional and national Lamarque conducted 15 interviews with 8 financial
Also, this article gathers inputs from two of his or central); cooperatives and received answers from 50 banks
papers and a book, all references are presented at 2. the influence and decision-making to a survey questionnaire.
the end of this report. authority of each level, evaluated by three
criteria: the type of decision at each level,
Although coop financial institutions share the effective level of autonomy and the
the same coop principles, they may diverge in influence of governance structure on the
a spectrum of governance models. In-depth management.
understanding of the processes that govern the
model is key for transparency and trust. Adding to this framework, four different
interactions were investigated that contribute to
In his article “Identification and valuation of the decision-making process in coop organizations:
cooperative banking Models”, published in 2014, interactions between levels of management,
Mr. Lamarque conducts a study using a framework interactions between governance and management
for analyzing coop governance and then assigning structures, interactions between different levels
performance profiles, highlighting the different of the governance structure, and interactions with
coop governance models. The analyses were based members/customers.GOVERNANCE COOP MODEL/ Governance Models
First highlights from the respondents were a common set of principles. Although they are implemented differently in each coop
bank, they are what distinguish them from traditional banks. 4 principles were detailed:
1 Unique practices for allocating earnings
Members vote to determine the returns paid on ownership shares and evaluate the performance of general managers at the local and regional
levels. Every member votes regardless of their equity share or in the amounts of their deposits.
2 Autonomy
Local boards have a role and an importance in the management. There is a common strategic alignment between local, regional and national levels
and the autonomy of local manager depends on the degree of oversight provided by the upper level.
3 Accountability
General managers play a role of building relationship with customers and members that participate in the activities. Accountability, therefore, is
an exercise of listening, providing support to members and respecting the relationships.
4 Recognition
freedom and autonomy to make decisions are primary incentives to elected officers, giving meaning to the work. In the same way, customers
contributions as members are valued.GOVERNANCE COOP MODEL/ Governance Models
In the end, three main governance model were identified by the cases studied:
1 Centralized governance model
In this case, the organization counts on a central body with strong influence in the decision-making processes and able to push its authority across
all levels. Elected members, general assemblies and boards provide assistance for management decisions made at the regional and local levels.
2 Shared decision-making model
In this model, decision-making authority appears to be relatively significant at both national and regional levels. It’s a harder model to pin down
given that the distribution of decision-making between levels tends to vary from one period to the next. Decisions are often built in common. In
recent years regional entities have increased their level of influence on group decisions. Elected assemblies are consulted at the regional and local
levels but do not set objectives.
3 Decentralized governance model
local and regional level have significant authority over all key functions. The central body’s job is to monitor the performance of local entities,
centralize financial data, support implementation of development strategies, and manage liquidity. This model can be broken down into two types,
with decision-making authority being concentrated at either the local or regional level. Elected assemblies at the regional and local levels are
consulted and may participate in making strategic decisions and defining objectives.
Based on all this experience, when asked about how governance models are adapting to digitalization opportunities, Mr. Lamarque
points out the better circulation of information inside the organization. Virtual tools and technologies may improve participation of
members, promoting virtual proximity to general assembly, organizing voting, even remote voting to elect board members. This brings
more people to discuss, increasing diversity and enabling more communities to engage in the decision-making. Digitalization when
applied to these processes improve transparency, make representation more legit and strengthen relationships.Blockchain Opportunities and Challenges
GOVERNANCE COOP MODEL/ Blockchain
PEDRO ANDRADE
Pedro Andrade is an entrepreneur, full stack developer, emerging technologies consultant, decentralized solutions
architect and instructor. He has worked as innovation and digital transformation consultant in the retail market. More
recently, he has been given blockchain and smart contract trainings in Latin America and worked in a mobility ICO (Initial
Coin Offering) in Austria. He uses his software development skills to bring ideas to life, mainly about positive social impact.
Pedro helps organizations to understand emerging technology, mainly Blockchain and decentralized technologies, and its
impacts in their businesses.
We did an interview with Pedro and talked under control by any particular peer and can’t be implicate?
about the changes and opportunities that frauded, participants can trust the system and
organizations may find in this (still) underexplored work together. I believe that the digitalization is a great
technology of blockchain. opportunity to rethink organization’s processes
Other key aspect of blockchain technology to ensure that things are being done in the most
1. Blockchain may threaten some of that could inspire the creation of new models of efficient way. In the case of voting, we could
the current governance systems. What governance is how incentivization is used over start by asking ourselves: when voting is the
aspects of governance may be impacted by restrictions to obtain certain desired outcomes. best approach to decision-making and when it
blockchain technology? The idea is to add a charge for an action instead is not? What could we do instead of voting? Who
of forbidding it because the latter would require should be allowed to vote? What are the fairest
The biggest impact in my opinion is allowing more control over the network. voting mechanisms?
people who don’t know or trust each other
to collaborate on decision-making. One very 2. Participation in a traditional A couple of examples:
known example is called DAO (Decentralized governance model is proportional to the
Autonomous Organization) which is basically a company share. Coop model is based We may wish to always vote for ourselves
set of smart contracts that, among other things, on ‘one member one vote’ for electing in themes A and B but, because we trust a peer
allow participants to submit, fund and vote for representatives. How may digitalization X on the matter C, we can leave to X all the
projects. Because the source code is public, run and blockchain technologies foster this decisions regarding this matter. This delegation
by many computers worldwide which are not coop principle and which changes may it mechanism can make voting process faster andincrease the quality of decisions. 4. In financial institutions, auditing suggest a framework called “5 x 5 x 5” where
plays a center role in creating trust in proof-of-concepts are restricted to a maximum
Quadratic voting is a procedure that allows processes. How do you see this changing cost of US$ 5000, carried out in maximum 5
voters to express the intensity of their desires in the face of blockchain? weeks by maximum 5 persons. The main goal is
GOVERNANCE COOP MODEL/ Blockchain
by buying voting power. So, instead of each gathering information about assumptions which
participant having one vote, they could have many First generation blockchains like Bitcoin can will lead to better decisions when choosing the
according to how much they care about certain be seen as a public, decentralized, distributed next projects.
issues. Besides the price increasing exponentially and append-only databases. Although these
we could also place other restrictions to ensure characteristics - along with some cryptographic 6. Interesting references (links,
the procedure is fair and is not monopolized by mechanisms, make conventional auditing sites, articles, books) about blockchain
richest voters. virtually unnecessary, it would be troublesome and digital governance that you’d like to
for a financial institution to adopt a blockchain share:
3. What are the biggest challenges and like that due to privacy, law requirements and
gains of adopting a decentralized model in many other factors. - Blockchain Governance: Programming
decision making processes? Does it have Our Future:
different implications comparing a big, What I imagine as an initial step is https://medium.com/@FEhrsam/
nationwide company and a small, local incorporating some of blockchain’s features to blockchain-governance-programming-our-
one? improve the systems that are in place. For example, future-c3bfe30f2d74
having an append-only shared ledger between
I think biggest companies have more to gain as financial institutions could make consolidation - Quadratic Voting: http://ericposner.com/
they are more likely to have complex governance an automatic process. quadratic-voting/
processes that could be simplified and broadened
at the same time. The biggest gains are exactly 5. How can an organization evaluate its - Colony project: https://colony.io
this: allowing more participation even from readiness to these trends in blockchain?
outside the organization if desired.
For conventional organizations it may be a
The biggest challenges are understanding the challenge to adopt blockchain as it would imply
decentralized mindset and the consequences of it, to decentralize at least part of the control the
like: having to spread the control to participants, organization holds. It is most likely to be easier
respecting the outcome of decisions, being mindful in cooperatives as they are by nature more
of all the possible interactions from participants, decentralized as decisions are made collectively.
correctly align the incentives to reward actors
who contribute to the network and disincentivize My suggestion is always having a budget to
bad actions, etc. experiment and pilot a few ideas and technologies
every year. It doesn’t need to be much. In the
book “Innovator’s hypothesis” Michael SchrageCoop Governance Principles
GOVERNANCE COOP MODEL/ Governance Principles
RAYMOND OLIGER
Raymond Oliger holds a degree in philosophy and psychology. He is the former President of Banque Populaire Lorraine
Champagne and of the Fédération Nationale des Banques Populaires. He served as Vice President chair of CIBP and is a
former member of BPCE Supervisory Board
Mr. Oliger led a working group on governance model in CIBP in 2014. The output was a series of documents comparing models from CIBP
members and other key findings regarding the interaction of coop values and governance.
The group did a survey within the CIBP community that confirmed the range of governance models, shaped by their respective environment.
Besides the advantage of flexibility in different models, this may bring a lack of consistency, opening an opportunity for regulators to apply the
same rules as traditional financial institutions.
The study brings five important perspectives that should be considered for assessing a coop governance model:
1 Balance on the Boards
Representation is key on the elected board and the appointed executive structure. Considering geographic representation favours proximity,
diminishing the gap of local concerns and strategy. Socio-professional balance enables cross-over between economic activities. Age and gender
balance should also be considered. A balanced representation avoids keeping influence of the same groups
2 Credibility
Representation is key on the elected board and the appointed executive structure. Considering geographic representation favours proximity,
diminishing the gap of local concerns and strategy. Socio-professional balance enables cross-over between economic activities. Age and gender
balance should also be considered. A balanced representation avoids keeping influence of the same groups3 Transparency
access to reliable information is a responsibility towards shareholders. This is fundamental for general meetings, that should be complemented by
meetings held in the different locations, engaging more shareholders in discussing relevant issues to the bank.
GOVERNANCE COOP MODEL/ Governance Principles
4 Independence
the independence of the deliberative and executive structures should not be a challenge for coop governance. Limiting the number of mandates of
elected board and making the “one member one vote” model an universally principle are options to guarantee the independence.
5 Long-term outlook
the sustainability of the model, carrying for the long-term coop principles, can be achieved by management strategies. Focus on management
performance in the mid and long-term, disconnect remuneration from share and results and make impossible to share reserves are options
investigated in the study.
But, from five to ten years ago, digital revolution shifted the analyses over the fundamental aspects of cooperative governance
model. As highlighted by Mr. Oliger, they are three: participation, representation and information. Physical distance that separated
members, local organizations and the central decision body shrank with the virtual boundaries of internet. The high costs for sharing
information and the logistics of correspondence to voting in assemblies were replaced by accessible tools for participation and for
transparency.
Technology disrupts practices on the above governance perspectives and therefore may have a crucial role in nowadays assessments.
Digitalization can leverage the balance on the boards reaching a wider panel not only of electors but also of candidates. Direct participation
of members via digital tools and also leads to direct democracy, strengthening transparency. No organization would refuse to give access
to open information to its members and regulators. Therefore, it is necessary to adopt and improve new communication channels.
The challenge to adapt coop governance models are not only to the technological evolution but also to new mentalities. Mr. Oliger
states then: “This revolution-evolution will prevail only if we have the ability to keep a clear vision of our fundamentals and to stay
faithful to them”.CONCLUSION AND OUTLOOK
Conclusion and outlook
GOVERNANCE COOP MODEL/ Conclusion
Governance requires a high level of commitment and a deep understanding of the process. For coop organizations, we must add a
tight connection to principles and values.
The governance structure for a coop financial institution does not have a standardized model. Expert Eric Lamarque described a
framework used in assessing different models, considering important aspects such as the number of decision-making levels and the
influence and authority of each level. Also, it is important to consider the relationship between different parts of the structure, such as
different levels of management, governance and members. Expert Raymond Oliger also described the importance of assessing coop
governance model in the face of principles of cooperative governance, highlighting criteria like balance, transparency, credibility,
independence and sustainability.
Rethinking governance is an opportunity to take a step towards innovation. Digital technologies leverage the chance to reinforce
tools to make processes faster, more transparent and reliable to all stakeholders. Expert Pedro Andrade points out the collaboration
in decision-making process that blockchain technology can foster.
Values are the cornerstone that differentiate cooperative governance from traditional models. Management activities, deliberation
processes and ownership are shaped by these values. Relevant cases of bigger autonomy to local branches and cases of centralized
goals setting should be explored in further work, adding value to this governance discussion.References
GOVERNANCE COOP MODEL/ References
Developing an effective governance operating model - A guide for financial services boards and
management teams:
(https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Financial-Services/dttl-fsi-
US-FSI-Developinganeffectivegovernance-031913.pdf)
MIGLIORETTI, Marco et all. 2018. “New Cooperative Banking in Europe – Strategies for Adapting the
Business Model Post Crisis”. IAE Université Paris 1 Panthéon-Sorbonne.
DEVILLE, Aude and LAMARQUE, Eric. 2014. “Cooperative Banking Report: Identification and Valuation
of Governance Models”. International Summit of Cooperatives Quebec 2014.
ALBERT, Stéphane and LAMARQUE, Eric. 2016. “The impact of financial regulation on policy and risk
management in financial cooperatives”. International Summit of Cooperatives Quebec 2016.
“Data governance: securing the future of financial services Financial Services”. Leadership Summit
January 2018
https://www.ey.com/Publication/vwLUAssets/EY-financial-services-leadership-summit-
2017/$FILE/EY-financial-services-leadership-summit-2017.pdf
European Association of Co-operative Banks - http://www.eacb.coop
Blockchain Technology Guide - https://blockgeeks.com/guides/what-is-blockchain-technology/CIBP SPRINT 2nd Edition | 2019 All rights reserved. CIBP Members Banque Populaire du Maroc BPCE - Banque Populaire and Caisse d’Épargne BVR - Bundesverband der Deutschen Volksbanken und Raiffeisenbanken CPH Banque Credicoop Desjardins DZ Bank FNBP ÖGV Österreichischer Genossenschaftsverband Volksbank Wien Sicoob Sistema de Cooperativas de Crédito do Brasil SPRINT Team ANGA Group
WE STAND FOR INNOVATION
IN COOPERATIVE BANKING
www.cibp.euYou can also read
